ECONOMIC UPDATES

Chart of the week: Trump trade war shows the deficit in good and goodwill

Share this post

Chart of the week: TRUMP'S 'TRADE WAR' SHOWS THE DEFICIT IN GOODS AND GOODWILL

6 March 2018

Bob Cunneen, Senior Economist and Portfolio Specialist

America's annual trade deficit in goods

Source: Thomson Reuters

US President Donald Trump’s announcement of a 25% tariff on steel and 10% on aluminium imports has sent a shockwave through global trade. While the President has formally cited “national security” as the key reason for this decision, it suggests that further tariff measures could be applied to other imported goods in a desperate effort to reduce America’s astronomical trade deficit.

In the past year to December 2017, America was running an annual goods deficit approaching US$800 billion (black line). The key contributors to this total deficit was the US$175 billion net import bill from European goods trade (blue line) and the immense US$375 billion deficit with China (red line).

President Trump has calmly pronounced that “trade wars are good and easy to win”. However, there is a risk of retaliation from America’s trading partners which could lead to higher prices for goods including cars and equipment for US businesses and consumers. Higher inflation could then accelerate the pace of interest rate increases from the US central bank. It’s hard to see how this could be “good” for America.

Important information

This communication is provided by MLC Investments Limited (ABN 30 002 641 661, AFSL 230705) (“MLC”), a member of the National Australia Bank Limited (ABN 12 004 044 937, AFSL 230686) group of companies (“NAB Group”), 105–153 Miller Street, North Sydney 2060. An investment with MLC does not represent a deposit or liability of, and is not guaranteed by, the NAB Group. The information in this communication may constitute general advice. It has been prepared without taking account of individual objectives, financial situation or needs and because of that you should, before acting on the advice, consider the appropriateness of the advice having regard to your personal objectives, financial situation and needs. MLC believes that the information contained in this communication is correct and that any estimates, opinions, conclusions or recommendations are reasonably held or made as at the time of compilation. However, no warranty is made as to the accuracy or reliability of this information (which may change without notice). MLC relies on third parties to provide certain information and is not responsible for its accuracy, nor is MLC liable for any loss arising from a person relying on information provided by third parties. Past performance is not a reliable indicator of future performance. This information is directed to and prepared for Australian residents only. MLC may use the services of NAB Group companies where it makes good business sense to do so and will benefit customers. Amounts paid for these services are always negotiated on an arm’s length basis.